All public bodies that are in a position to give resources to help businesses need to know about state aid. State aid is when a local or national authority selectively grants public resources to an entity which is engaged in economic activity and provides that entity with an economic advantage.
The Treaty on the Functioning of the European Union states that state aid, in whatever form, which could distort competition and affect trade by favouring certain undertakings or the production of certain goods, is illegal. There are, however, exceptions to this rule. In certain circumstances, the Commission may formally approve aid measures within certain limits.
The reason why both public authorities and the recipients of aid need to be concerned is that the European Commission has powers to recover unlawful state aid. The consequences of giving such aid include:
- firms may have to repay the State aid with interest
- aid payments and schemes may be suspended
- policies may have to be altered.
The rules around when aid is (or is not) state aid are complicated. The European Commission has since May 2012 been reviewing state aid rules and guidance, with the aims of: fostering growth in a competitive internal market; focusing scrutiny on cases with the biggest impact on the internal market; and streamlining the rules and providing for faster decisions.
There are four main Regulations that underpin the state aid rules. We reported on the amendments to two of these, the Enabling Regulation and the Procedural Regulation, in our last Local Government review article. The other two are the General Block Exemption Regulation and the De Minimis Regulation.
General Block Exemption Regulation (GBER)
The GBER is a crucial part of state aid rules, as if aid falls within one of its categories, then it is exempt from being notified to the Commission (notification is normally necessary to gain approval of the aid). The Commission expects that about three-quarters of aid measures and two-third of all aid granted will be within the scope of the new GBER. It is not surprising that the Commission has been consulting on the drafting of the new GBER for some time and issued a third and final draft in December for consultation (which ended in February). The revised GBER significantly extends the exempted aid by providing higher notification thresholds and aid intensities in many areas, and by including a number of new categories of aid. The final GBER will come into force on 1 July 2014.
De Minimis Regulation
A revised De Minimis Regulation came into force on 1 January 2014. This exempts aid from being illegal state aid if it is below a minimum threshold. The maximum aid that can be granted is EUR 200,000 to a single undertaking over three years, but the definition of “single undertaking” has been clarified and the revised Regulation also includes loans, if they are at least 50 per cent. secured and no more than EUR 1 million over five years or EUR 500,000 over ten years.
The Notion of State Aid
Recently the Commission has gone back to basics and looked again at what state aid actually means: how do you define the different elements that make up state aid? The consultation has just closed so we will wait and see what the views are. Our article on the notion of state aid gives more information.
As well as regulations, state aid rules are made up of guidelines from the Commission that cover various sectors. As part of the State Aid Modernisation programme, the Commission is updating these guidelines. Some of the key ones are:
Energy and Environmental Aid
As predicted in this article on state intervention in the European electricity market, the final draft Guidelines on Energy and Environmental Aid that were published for consultation in December 2013 are based on the idea that support for renewable energy should be market-based wherever possible. Aid should be in the form of market premiums (supplements to the wholesale price) or tradable certificates, rather than fixed tariffs.
Specific measures covered in the Guidelines include investment aid for remediating contaminated sites, resource efficiency and waste management, and district heating and cooling.
Research & Development and Innovation
The new Framework will apply from 1 July 2014 and sets out how the Commission will assess aid for research and development and innovation (R&D&I) that falls outside the scope of the GBER. It establishes greater legal certainty for support for public-private R&D&I projects, in order to facilitate public/private R&D collaboration and knowledge transfer.
Rescue and restructuring
A revised draft of these Guidelines was published in November and expected to be adopted in the first half of 2014. The main proposals are a new concept of temporary restructuring support for SMEs in the form of loans or loan guarantees lasting no longer than 12 or 18 months; and better filters, to ensure that state aid is targeted at cases where it is really needed. For more information see this article.
Risk finance guidelines for investment in SMEs
These were adopted in January 2014 and will replace the existing Risk Capital Guidelines from 1 July 2014, until 31 December 2020. They apply to risk finance schemes, not ad hoc measures providing financial aid to individual undertakings. The new Guidelines are wider in scope than the previous ones, as they apply to aid measures in favour of small midcaps (up to 499 employees), innovative midcaps (up to 1500 employees and with R&D and innovation costs representing 10% of total operating costs) as well as SMEs (up to 250 employees). They apply to aid that is above EUR 15 million; aid below this will fall within the GBER. The types of aid that can be granted are wider, including loans and guarantees as well as equity.
Important projects of common European interest
The Commission published a draft Communication on important projects of common European interest (IPCEIs) in January 2014 and it is intended to take effect on 1 July 2014. Examples of IPCEIs are cross-border transport projects, energy infrastructure projects, research infrastructure or pan-European investments linked to the development of key enabling technologies. They often need public authorities to fund them as the market would not otherwise finance such projects. Such state support constitutes state aid.
At present, rules on state financing of some IPCEIs are contained in the current Guidance on R&D&I and environmental aid, but there is no separate document specifically covering all IPCEIs. As part of the State Aid Modernisation programme, the Commission has published this new Communication that brings all the rules relating to financing of IPCEIs together, updating, consolidating and extending the existing guidance.
This article merely summarises the latest developments in the State Aid Modernisation programme, without going into great detail. We are happy to provide you with more information on any of these areas which may be of particular interest to you. For more information please contact David Kilduff or Richard Auton.